Final Results

7 March 2012

Stadium Group plc (AIM : SDM)

Unaudited preliminary results for the year ended 31 December 2011

Stadium Group plc (or "the Company" or "the Group"), the AIM listed provider of electronic design and build solutions, announces results for the year ended 31 December 2011.

Financial headlines

·; Revenues unchanged at £44.94m (2010: £44.81m)

·; Profit before taxation up by 38% to £3.96m (2010: £2.87m)

·; Normalised profit before tax (after one-off, predominantly pension related items) of £2.64m (2010: £2.91m)

·; Earnings per share up by 32% to 9.0 pence (2010: 6.8 pence)

·; Strong balance sheet net cash of £2.94m (2010: £1.67m)

·; Disposal of surplus freehold property completed for net proceeds of £2.50m (Net Book Value £2.04m)

·; Final dividend proposed at 1.75 pence per share, an increase of 13% (2010: 1.55 pence) bringing total dividends (paid and proposed) to 2.80 pence per share (2010: 2.50 pence)

Other highlights

·; New Chief Executive, Stephen Phipson CBE, appointed 1 September 2011

·; Significant investment in improving operations and commercial management teams

·; Defined strategy to move the Group towards the design and manufacture of electronic subsystems

·; Targeted programme of investment in new equipment underway

·; Final salary pension scheme closed to future accruals

Commenting on outlook, Chairman Nick Brayshaw OBE said,

"While the weakness in demand experienced towards the end of 2011 has continued into the start of 2012, there has been a good deal of success in converting opportunities into new business wins. In addition, the focus on operational improvement in areas such as overheads, purchasing and factory efficiencies has yielded significant benefits which will be realised during the remainder of the year. Consequently the Board remains confident about the overall group performance for 2012."

For further information please contact:

Copies of the audited financial statements will be sent to all shareholders shortly.

About Stadium Group plc (http://www.stadium-plc.com)

Stadium Group Plc is a leading UK-owned provider of electronic design and build technologies.

Stadium Power offers power supply subsystems to original equipment manufacturers including custom and standard switch mode power supplies, inverters, converters and battery chargers. The business is able to draw upon the manufacturing capabilities of Stadium Electronics to offer flexibility and competitiveness. The business delivers organic growth through the identification of new customers and product opportunities, and this has been complemented by the acquisition of other businesses offering additional technology, skills, products and customers.

Stadium Electronics provides high quality, cost-effective Electronic Manufacturing Services ("EMS") through a partnership approach with key customers. Our manufacturing operations in the UK offer flexible solutions for new product development and lower volume high mix production, whilst our facility in Asia is able to deliver cost effective manufacturing services for customers with higher volume requirements. Stadium Electronics employs approximately 900 people across three manufacturing operations in Hartlepool, Rugby and Dongguan, PRC.

We aim to deliver sustained growth through market development, design and engineering support, technology investment and strategic acquisitions.

Stadium Group plc

Chairman's statement

Covering the year ended 31 December 2011

Introduction

I am pleased to announce a year of healthy trading performance against a constant background of global economic uncertainty. During the year the Group underwent significant internal change and strategic repositioning and I am delighted to report that we have developed a sustainable platform for growth with a strengthened management team and a focus on operational improvement.

Overview

Revenues are slightly ahead of those delivered twelve months ago at £44.94m (2010: £44.81m). Operating profit increased to £4.20m (2010: £3.34m) as a result of a number of one-off items relating to the pension scheme.

The period saw the commencement of a significant and targeted investment in capital equipment and senior appointments throughout the business to support the Group's redefined strategy.

A sharpened focus on high growth markets by the commercial team generated significant customer wins throughout the year. The impact of these was diluted somewhat by weakness in demand from the core business over the latter part of the year; however, we anticipate that the new business wins will continue to drive growth into the future.

The management team has identified significant opportunities to integrate operations and deliver economies of scale to improve profitability. A programme of work to increase operational effectiveness commenced towards the end of the year and we expect to see the benefits of this begin to accrue in 2012 and beyond.

Two non-trading matters were brought to a successful conclusion during the year:

·; The divestment of the surplus property at Chingford for net proceeds of £2.50m was completed during April 2011. The property was previously occupied by the Branded Plastics division.

·; The same month saw the closure of the final salary pension scheme to future accruals. The scheme was closed to new entrants in 1995, and the closure to future accruals is an important step towards finally resolving the funding of the pension scheme.

Board changes

There were a number of changes to the Board during the year. In September Stephen Phipson CBE, was appointed as the new Chief Executive of the Group, in succession to Nigel Rogers. Stephen joined us from Smiths Group plc, a FTSE 100 business and with his experience in leading substantial businesses, driving strong organic growth and international expansion, is already proving to be a great asset to the business.

In October Charlie Peppiatt was appointed to the newly created Board role of Operations Director. Charlie, who joined Stadium from Laird plc where he was based in Beijing, brings expert knowledge of global manufacturing businesses and change management that will prove invaluable to the operational development of our business. Stephen and Charlie joined at a very exciting time and I look forward to working with them both in developing Stadium into a world-class global technology business.

Business strategy

Our strategy is to build a business through a combination of focusing on the many organic growth opportunities that the team has identified, augmented by acquisitions that will help the Group to become a leading provider of niche electronic technologies with the capability to provide a complete manufacturing partnership to OEMs in the Professional Electronics market.

The strategy is to progressively improve the quality of earnings through leveraging existing manufacturing capability and acquiring adjacent defendable niche technologies which can generate long term value.

During 2011 the management team identified three key areas for business improvement which will underpin performance over the short and medium term, as follows:

Operational leverage

Our investment in high calibre operational management has already helped to identify improvements in the operating effectiveness of the business. Early efforts to move towards a business based on global functions rather than geographic locations have started to deliver significant gains from improved management of the supply chain and manufacturing excellence. The upgrading of the technical equipment in the UK which started during 2011 will continue across the Group in 2012 as we continue to invest in new machinery through a programme of targeted capital expenditure. We anticipate that these activities will deliver greater financial benefits in 2012.

Organic growth

A number of senior sales team appointments were made during the year. Our focus on the emerging Asia markets led to the implementation of a new commercial structure in Asia and our targeting of niche and high growth market sectors, including medical and greentech, has seen the realignment of the Group's commercial structure with sector specific account managers. The sales opportunity pipeline gives us confidence that we can continue to grow market share with new business wins in our target markets.

Acquisition

We believe that a co-ordinated programme of acquisitions will enable us to create a business with an improved quality of earnings designing and manufacturing sub-systems for the Professional Electronics market. Our acquisition model concentrates on businesses that bring a clear value proposition and synergy to the Group, for example adjacent products and services that offer both independent growth potential and integration opportunity with the existing Power Supplies and EMS businesses. Work on identifying a pipeline of suitable acquisition opportunities has commenced and we would anticipate some progress in this area during the coming year.

Dividend

The board proposes a final dividend of 1.75 pence (2010: 1.55 pence) per share to be paid on 3 May 2012 to shareholders on the register on 30 March 2012. This represents an increase of 13% over the previous year and is consistent with our policy of maintaining a dividend which is covered three times by earnings.

Outlook

While the weakness in demand experienced towards the end of 2011 has continued into the start of 2012, there has been a good deal of success in converting opportunities into new business wins. In addition, the focus on operational improvement in areas such as overheads, purchasing and factory efficiencies has yielded significant benefits which will be realised during the remainder of the year. Consequently the Board remains confident about the overall group performance for 2012.

Nick Brayshaw OBE

Chairman

7 March 2012

Business and Financial Review

Covering the year ended 31 December 2011

Business review

The future organic growth of the business lies in markets for high technology products which present the opportunity for rapid growth at an early stage in the product's lifecycle. The Group's objective is to grow through gaining market share through new business while also maintaining the level of activity in the core business which has a mature base of established customers.

Revenue by source

Whilst overall revenues were at a similar level to the previous year there was significant progress on winning business in new target markets and the continuing benefit of this progress will be seen in the current financial year.

The traditional core business weakened towards the end of the third quarter as customers of the EMS division started to anticipate the prospect of a double dip recession. Despite the downturn, the EMS operation in Asia achieved a small measure of growth. The EMS operation in the UK was particularly disadvantaged by cut-backs in government spending which saw sales to one end customer of the Highways Agency reduce significantly. Against this background, it is pleasing to report that sufficient new business was won to ensure that the impact of the downturn was limited which demonstrates the strength of the Group.

The Power Supplies business delivered growth of 14% globally in increasing revenues by £0.60m to £4.93m. In this area it remains important that the Group continue to invest in new products and £0.13m of new development costs were capitalised during the year.

Revenue by destination

The proportion of sales made into the UK grew to 58% (2010: 56%) as most of the new business wins achieved during the year were with UK based customers. The apparent shift in emphasis from Europe to Asia reflects a change of invoicing point for a major customer from European locations to a central Asian distribution hub.

 Revenue by industry sector

The focus of our sales strategy on sectors offering opportunities for high growth proved to be beneficial during the year with major new customer wins achieved in the Industrial Control and Green Energy and Environment sectors.

The Green Energy and Environment sector was particularly pleasing with new customer wins for manufacture in both Asia and the UK.

There was also a significant new business win in the Security market although this was more than off-set by the reduction in activity where the end customer is the Highways Agency, as can be seen from the table above.

The consumer and communication sector saw a further managed exit from customers with whom we were unable to achieve our profit aspirations as we sought to put our resources to a more profitable use.

Revenue by customer

It is important to measure, monitor and manage customer concentration risk in the EMS industry. Reliance on one specific customer or cluster of similar customers in a related market sector could expose the business to undue risk in the event of changes in the macro-economic or technological environment.

Each customer and industry sector requires a certain level of investment in capability in order to develop and maintain the level of expertise required to service the customer effectively and satisfy or exceed their expectations for quality and engineering and development support. It can become costly to maintain a customer base which is too diverse.

We consider that the customer profile does not represent an undue concentration risk, while also offering a measure of protection against external factors beyond the Group's control.

People and processes

The business made significant investment in both people and processes during the year. The capability of our commercial team was improved by the addition of three new sales staff. The operations team has been restructured and a global leader introduced with the addition of Charlie Peppiatt, recruited from Laird plc in China. The team has further benefited from the addition of more senior staff at plant level. The business processes have moved towards a functional rather than locational focus and we are already seeing benefits in the form of improved operational efficiency.

Outlook

The pipeline of future opportunities remains strong and offers the prospects for further growth into the future. We will continue to invest globally in technical capability, with expansion planned for both Asia and the UK during the year. We will further improve the capability of our teams with targeted recruitment in support of these opportunities. We are optimistic of the Group's potential to fulfil its growth aspirations through organic growth of the existing business and acquisitions of new technologies in satisfaction of our strategy. The Board also continues to evaluate potential acquisition opportunities that will help to deliver the strategic objectives of the Group, but will remain prudent in this process.

Stephen Phipson CBE

Chief Executive

7 March 2012

Financial Review

Results

Profit before taxation at £3.96m (2010: £2.87m) was an improvement of 38.0% on the prior year.

The result for the year benefited from a number of items which were not within the normal course of business. Not least among these were two pension related items representing a profit of £0.99m from the change to inflating future pension commitments at CPI instead of RPI and £0.34m from settlement gains on transfers of pension entitlement by members out of the final salary pension scheme. A further one-off gain of £0.46m was realised on the sale of the non-core property at Chingford which was completed during April. These factors were off-set by the costs of changing Chief Executive (£0.37m) and of a small re-organisation of UK operations to improve efficiency (£0.10m). The position can be summarised as follows:

Revenues were flat against the prior year at £44.94m (2010: £44.81m). Underlying sales, after allowing for the relative weakening of the average US dollar exchange rate, were up by 2.3%. Gross margin was resilient at 19.1% (2010: 20.6%) despite an adverse customer mix and cost pressure from commodity prices. The decision was taken to invest in the capability of the operational management team and the strength of the sales resource at an incremental cost of £0.25m in the year. This saw operating margin, normalised for the factors above reduce to 6.4% (2010: 7.5%). It is anticipated that the investment in people will benefit the business in the long term by allowing it to grow market share more quickly than would otherwise have been the case.

Headline earnings per share from continuing operations of 9.0p (2010: 6.7p) were up by 34.3% on the prior year. Adjusted earnings per share, after allowing for one-off factors, decreased by 0.2p to 6.5p.

Statement of financial position and cash flow

Net cash inflow from trading activities amounted to £3.38m (2010: £2.66m) which represents 81% of operating profit (2010: 79%). After payment of pension deficit contributions (adjusted for the effect of the CPI/RPI change) and tax amounting to £2.51m (2010: £2.34m), operating cash outflow was £0.12m (2010: £0.32m inflow). Pension deficit contributions paid during 2011 were greater than the normal level of deficit funding by £1.04m (2010: £0.89m) following the payment of the final element of the statutory debt which arose upon the divestment of the Branded Plastics business in 2010, from the proceeds of the disposal of the property at Chingford.

Net cash at 31 December 2011 stood at £2.94m (2010: £1.67m). The multi-currency revolving credit facility of £3.00m which was drawn down in US dollars during 2008 was maintained during 2011. The balance at 31 December 2011 of £1.42m (2010: £2.11m), translated at closing exchange rates, is repayable in equal six monthly instalments over the next two years. The net loss of £0.01m (2010: £0.05m loss) on the retranslation of the outstanding balance on the US dollar loan at year end exchange rates was dealt with in reserves. This offsets the net translation gain of £0.05m (2010: £0.10m gain) arising on the net investment in Asia operations.

Bank facilities

At the end of the year, the Group had aggregate banking facilities of £5.79m, of which £3.50m are committed for a period of greater than one year and £2.29m are repayable on demand. Of these facilities, an amount of £1.66m was utilised. Group companies have complied with all financial covenants relating to these facilities. There were aggregate net credit balances of £4.59m held in accounts in respect of which facilities of £2.29m were available and a further £1.85m of the facilities extending beyond one year was unutilised.

Taxation

The effective rate of taxation represented 34% of profit before taxation (2010: 32%). The underlying rate of current tax was 13% (2010: 18%). The remaining 21% of the effective tax rate arose on the release of the deferred tax asset as a result of the reduction in the pension scheme deficit due to cash contributions and one-off items. These included the effect of inflating future pension commitments at CPI instead of RPI and settlement gains on transfers of pension entitlement of members out of the scheme. The element of the tax charge relating to deferred tax does not give rise to a cash flow. Tax on profits earned in our Asia operations are incurred at a rate of approximately 20% (2010: 20%), and paid locally.

It is anticipated that the future effective rate of taxation will be substantially dependent upon the level of pension deficit contributions relative to profits before taxation. With this in mind it is expected that the future effective tax rate will be in the range of 20%-25%.

Dividends

During the year the Group paid the final dividend for 2010 of 1.55 pence per share, and the 2011 interim dividend of 1.05 pence per share. Aggregate cash outflow in respect of these items was £0.76m (2010: £0.70m). The board intends to maintain the policy of covering the dividend three times, and proposes a final dividend of 1.75 pence per share on 3 May 2012 at a cost of £0.51m.

Pension scheme

The Group operates a defined benefit pension scheme which was closed to new entrants in 1995 and closed to future accruals in April 2011. The pension liability at the end of the year (net of the related deferred tax asset) was £4.83m (2010: £5.64m). Pension contributions of approximately £2.48m (2010: £1.81m) were paid to the scheme in addition to those relating to current service. This amount includes the additional sum of £1.04m (2010: £0.89m) related to the sale of the Branded Plastics business in 2010.

The pension scheme underwent a triennial valuation during 2011. Following the valuation, the directors are in discussions with the Trustees to agree a funding plan for the pension scheme for the next three years.

Foreign currency effects

The Group has minimal exposure to transactional currency effects, as the currency of revenue and cost streams are matched by region. Most sales originating from UK operations are denominated in sterling, so are matched with the underlying costs. Similarly, sales sourced from Asia are normally denominated in US dollars and the cost streams in US dollars or local currencies which are closely aligned therewith.

Accordingly, there is a translation effect on consolidation of trading activities in Asia. This becomes realised only upon remittance.

The depreciation of the average US dollar exchange rate against sterling, compared to the previous year, reduced revenues by approximately £0.90m and operating profits by approximately £0.08m. Trading in our Asia operations is also adversely affected by the appreciation of the Chinese Yuan against the US dollar, as this has the effect of increasing operating costs in China. Exchange losses of approximately £0.09m (2010: £0.05m) have been recognised in current year earnings in respect of movements during 2011.

Treasury and risk management

Financial risks

The main financial risks faced by the Group are credit risk, foreign currency risk, interest rate risk and liquidity risk. The directors regularly review and agree policies for managing these risks. Further details are set out in Note 11.

Credit risk is managed by monitoring limits and payment performance of counterparties. The directors consider the level of general credit risk in current market conditions to be higher than normal. Where a customer is deemed to represent an unacceptable level of credit risk, terms of trade are modified to limit the Group's exposure.

Foreign currency risk is managed by matching payments and receipts in foreign currency to minimise exposure. Foreign currency is bought to match liabilities as they fall due where currency receipts are insufficient to match the liability. The results of Stadium Asia are reported in Hong Kong dollars and as a result of this the Group's statement of financial position and trading results can be affected by movements in the Hong Kong dollar. Part of this exposure is hedged by entering into loan facilities denominated in US dollars.

Liquidity risk is managed by the Group maintaining undrawn overdraft facilities in order to provide short term flexibility.

Interest rate risk is managed by holding a mixture of cash and borrowings in sterling, US dollars and Hong Kong dollars at floating rates of interest.

Market risks

The Group's main exposure to market risk arises from increases in input costs in so far as it is unable to pass them onto customers through price increases. The Group does not undertake any hedging activity in this area and all materials and utilities are purchased in spot markets. Input prices are monitored continually and underlying commodity prices are tracked. The Group seeks to mitigate increases in input costs through a combination of continuous improvement activities to increase the efficiency of operations and passing cost increases on to customers, where this is commercially viable.

The Group also has an exposure to the limitation of the availability of component supplies which could inhibit its ability to satisfy customer demand. The main suppliers of raw materials in the Group's market are distributors, not original component manufacturers. The current global economic environment has seen component manufacturers only slowly reintroducing capacity which was cut during 2009, so being unable to meet demand from resellers. The Group has taken steps to address this risk by seeking to build direct relationships with component manufacturers on the basis of consolidated global spend. It has also taken steps with customers to approve alternatives to critical components and so increase flexibility.

The Group is also exposed to the risk of a downturn in its customers' end markets leading to reduced levels of activity for the Group. The directors seek to ensure that the Group's activities are not significantly concentrated in sales to either one individual customer or into a single market sector in order to mitigate the exposure to a downturn in activity levels. The directors consider that the current level of market risk is higher than normal.

Other principal risks

The remaining main risks faced by the Group are its exposure to pension funding and the risk to its reputation of a significant failure to comply with accepted standards of ethical and environmental behaviour.

Pension funding risk arises from the Group's operation of a defined benefit pension scheme which at present has an actuarial deficit between the value of its projected liabilities and the value of the assets the scheme holds in order to discharge those liabilities. The amount of the deficit may be adversely affected by such factors as lower than expected investment returns, changes in long term interest rates and inflation expectations and increases in the forecast longevity of members. The directors regularly review the performance of the pension scheme and the deficit recovery plan. Proactive steps are taken to identify and implement cost effective activities to mitigate the pension scheme deficit.

The risk to the Group's reputation of failure to comply with ethical and environmental regulations arises mainly from the operation of a production facility in Asia. The directors have taken steps to ensure that all of the Group's global operations are conducted to the highest ethical and environmental standards. Regulatory requirements are kept under review and where appropriate production facilities seek to achieve BS, ISO and FDA accreditations. Suppliers are vetted in order to minimise the risk of the Group being associated with a company that commits a significant breach of the regulations.

Going concern

The directors confirm that, after having made appropriate enquiries, they have a reasonable expectation that the Group and the Company have adequate resources to continue operations for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparation of the financial statements.

Colin Wilson

Finance Director

7 March 2012

STADIUM GROUP PLC

NOTES:

1. Basis of preparation

The consolidated financial statements of Stadium Group plc for the year ending 31 December 2011 have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as adopted for use by the European Union (EU) effective at 31 December 2011 and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Company has elected to prepare its parent company accounts under UK Generally Accepted Accounting Principles (UK GAAP).

The Group's IFRS accounting policies, set out below, have been consistently applied to all the periods presented. The accounting policies have been applied consistently by Group entities.

The comparative figures for the year ended 31 December 2010 do not constitute statutory accounts for the purposes of s435 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 December 2010, has been delivered to the Registrar of Companies and contained an unqualified auditors' report in accordance with s495 of the Companies Act 2006.

Basis of consolidation

The Group financial information consolidates that of the company and its subsidiaries. Businesses acquired or disposed of during the period are consolidated from the effective date of acquisition or until the effective date of disposal.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Goodwill

Goodwill arising on consolidation consists of the excess of the fair value of the consideration over the fair value of the Group's interest in the identifiable tangible and intangible assets net of liabilities including contingencies of the business acquired at the date of acquisition.

Goodwill is recognised as an asset at cost less any recognised impairment losses. It is reviewed for impairment at least annually and any impairment is recognised immediately in the Income Statement.

Goodwill arising on acquisitions prior to 1 January 2006 has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1 January 2006 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

Revenue recognition

Revenue is measured at the fair value of goods provided to customers net of returns, discounts, value added tax and other sales taxes. Revenue is recognised when goods are despatched and title has passed to the customer and the collectability of the revenue is reasonably assured.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment losses.

Depreciation is charged at rates calculated to write down the cost of assets (excluding freehold land) over their estimated useful lives by equal instalments at the following rates:

Freehold buildings 2%

Plant and machinery 10% - 25%

Fixtures and equipment 10% - 25%

The gain or loss arising on disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in income.

Inventories

Inventories are stated at the lower of cost and estimated net realisable value. Cost is determined on a first-in-first-out basis including transport and handling costs and, in the case of manufactured products, includes all direct expenditure and production overheads based on normal levels of activity.

Deferred taxation

Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the reporting date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the reporting date. A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable surpluses from which the future reversal of the underlying temporary differences can be deducted.

Other intangible assets

Other intangible assets are shown at historical cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of the intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. The useful life of development costs is estimated to be 5 years. Amortisation periods and methods are reviewed annually and adjusted if appropriate.

Share based payments

Employee share options are measured at fair value at grant date using the Black-Scholes model. The fair value is expensed on a straight-line basis over the vesting period, based on an estimate of the number of options that will eventually vest.

Pension costs

Defined benefit scheme

Assets and liabilities arising from retirement benefit obligations and the related funding are reflected at fair value in the financial statements, and operating and finance costs are recognised in the financial periods in which they arise. Gains and losses arising from actuarial experience during the accounting period are recognised in the consolidated statement of recognised income and expense.

Defined contribution schemes

Contributions payable are charged to the income statement in the accounting period in which they are incurred.

Foreign currencies

Transactions denominated in foreign currencies are recorded at the prevailing rate on the date of the transaction.

Trading assets and liabilities denominated in foreign currencies are translated into sterling at the rate prevailing at the period end. Gains and losses arising on the translation of foreign currencies are dealt with as part of operating profit.

The assets and liabilities of foreign subsidiary undertakings are translated into sterling at the period end exchange rate. The income and expenditure of foreign subsidiary undertakings are translated into sterling at the average exchange rate prevailing during the period. Exchange differences arising on retranslation of opening assets and liabilities, long term financing denominated in foreign currency and the trading of foreign subsidiary undertakings are taken directly to the translation reserve using the net investment method.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before than date of transition to IFRS as sterling denominated assets and liabilities. As permitted by IFRS1, the Group elected to deem cumulative currency translation differences to be £nil as at 31 December 2005.

Provisions

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. A warranty provision is recognised when the related goods are sold. The provision is based upon historical customer claims data relative to levels of sales activity.

Discontinued operations and non-current assets classified as held for resale

A discontinued operation is an element of the Group that represents a separate major line or geographical area of operations that has been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation satisfies the criteria to be classified as held for sale if this is earlier. When and operation is classified as discontinued, the comparative statement of income and the statement of cash flows are restated as if the operation had been discontinued from the start of the comparative period.

Non-current assets and liabilities classified as held for sale are recognised at the lower of their book value and fair value less selling costs. Non-current assets held for sale are not depreciated, but reviewed for impairment and any impairment losses are recognised in the statement of income.

Research and development

Research expenditure is charged to the income statement as an expense when incurred. Development expenditure is capitalised as an internally generated intangible asset once criteria relating to the product's technical and commercial feasibility have been met and the decision to complete the development has been taken and resources committed to the completion of the project. Development expenditure capitalised includes the cost of materials used and direct labour. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Development costs are amortised over five years in a profile which matches the revenue generation profile of the product.

Leased assets

Leases of property, plant and equipment where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. Assets held under finance leases are capitalised at fair value of the leased asset. The corresponding leasing commitments, net of finance charges, are included in liabilities.

Leasing payments are analysed between capital and interest components so the interest element is charged to the income statement over the period of the lease at the constant periodic rate of interest on the remaining balance of the liability outstanding.

Depreciation on assets held under finance leases is charged to the income statement over the useful life of the asset.

All other leases are treated as operating leases with annual rentals charged to the income statement, net of any incentives granted to the lessee, over the term of the lease.

Financial Instruments

The Group's financial instruments comprise borrowings, some cash and liquid resources and items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to manage the finance of the Group's operations.

Financial assets and financial liabilities are recognised in the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Trade receivables:

Trade receivables do not carry any interest and are stated at their nominal value less appropriate allowances for estimated irrecoverable amounts.

Bank borrowings:

Interest bearing bank loans and overdrafts are recorded at the proceeds received net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the Income Statement and are added to the carrying amount of the instruments to the extent that they are not settled in the period in which they arise.

Trade payables:

Trade payables do not carry any interest and are stated at their nominal value.

Equity instruments:

Equity instruments issued by the Group are recorded at the proceeds received net of direct issue costs.

It has been, throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken. The Group does not consider that it has any obligations or rights under derivative financial instruments.

The main risks arising from the Group's financial instruments are credit risk, interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and these policies are set out in Note 11.

Accounting estimates and judgements

The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Key sources of estimation uncertainty

Stock provisions - The stock provision is based on average loss rates of stock in recent months. The provision makes use of stock counts performed which is considered to be representative of all stock items held.

Retirement benefit obligations - the key sources of estimation uncertainty relating to retirement benefit obligations are investment returns, discount rates and mortality assumptions.

Goodwill - Goodwill is evaluated for impairment at each reporting date. The recoverable amounts of cash generating units have been estimated based on value in use calculations.

Credit risk - Trade and other receivables are recognised to the extent that, in the opinion of the directors, they are recoverable in the ordinary course of business.

2. Segmental analysis

Sales to one Stadium Electronics customer amounted to £4,962,000 during the year, which represented over 10% of group revenue.

3. Operating expenses

Included with operating expenses are the following items, which are considered material due to their size, nature or a combination of both.

4. Finance costs comprises:

5. Dividends

A final dividend of 1.75 pence per share amounting to £514,000 will be paid on 3 May 2012, to shareholders on the register on 30 March 2012.

6. Earnings per share

The calculation of basic earnings per share is based on the profit for the financial year of £2,622,000 (2010: £1,969,000) and the weighted average number of ordinary shares in issue during the year of 29,294,549 (2010: 29,114,859).

Fully diluted earnings per share reflect dilutive options granted resulting in weighted average number of shares of 29,410,539 ordinary shares (2010: 29, 255,026) and profit for the financial year of £2,622,000 (2009: £1,969,000).

Adjusted earnings per share from continuing operations, is stated excluding exceptional items as follows:

7. Payables : amounts due after more than one year

8. Retained earnings

The movement on retained earnings for the year is as follows:

9. Net cash inflow from operating activities